Strong interest in the emerging market equity during 2019 receded in Q1 2020, perhaps reflecting the shocking change in global events, writes Sean Thompson. But international exposure is still prominent in portfolios.
Until recently, investors were still very much buying into the long-term emerging market story, but the devastating twist in global events this year shows once again how sensitive this asset class is to heightened risk aversion.
In 2019, Emerging Market Equities was the third-most searched asset class on the CAMRADATA Live Database, exceeded only by Global Diversified Growth (in first place) and Global Equity.
However, Q1 2020 has not been so positive for the asset class. It fell to sixth place – a development that almost certainly reflects the onset of the Covid-19 pandemic and that was possibly excacerbated by the fall in the oil price.
But investors are not completely retreating from international diversification.
The fact that Global Diversified Growth remains on top in terms of search activity not only indicates that investors maintain a preference for this particular asset class throughout times of volatile market activity, but possibly that they still want some kind of emerging market exposure –which, in many cases, these funds will give them..
Nevertheless, these funds will be loaded up with a good deal of exposure to developed markets. Of course, it may come as no surprise that in times of uncertainty, investors turn towards more developed markets rather than their emerging counterparts, with the latter potentially being more economically affected in the long run, due to the global lockdown.
Looking at the tables presented here, within the universe itself a clear correlation can be seen between investor search activity and the size of the universe, with All Cap and Large Cap being a significant focus for investors.
Similarly, when filtering by style, core strategies are by far the most popular search over the past 12 months, which ties in with the fact that the core strategy style is the largest proportion currently populating the database, and possibly suggesting that investors are not looking for significant capital appreciation with more potential risk at present.
In relation to managers that offer exposure to the Emerging Markets Equity universe, little has changed in comparison to the previous 12 months. Fidelity International rose from second place to become the most searched firm in Emerging Market Equity, taking the top spot from previous holder Wellington Management, who have subsequently dropped to second.
Aberdeen Standard Investments maintains a firm hold on third place, with Fisher Investments and Dimensional Fund Advisors in fourth and fifth places respectively.
How quickly the Emerging Market Equity universe reclaims some of the interest lost from 2019 will likely depend on the duration of the economic and industrial slowdown. Whether circumstances improve throughout the course of 2020 will most certainly be something to look out for.
Sean Thompson is managing director of CAMRADATA, owner of Funds Europe. All figures are for three months to March 31, 2020 unless otherwise stated
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